Australian farmers hold back on buying fertiliser as drought bites
Sydney — Australian farmers are postponing buying fertiliser and other products they typically use to protect their crops as a drought across the country's east coast darkens the outlook for the rural sector in one of the world's top exporters of grains.
Farmers usually begin sowing wheat, the nation's biggest rural export, in late April, but this year they are trying to minimise expenditure on items such as fertiliser, herbicides and pesticides amid the threat of a second-straight crop failure following the hottest summer in records going back to 1910.
That means companies that make those products like Nufarm, which reports half-year financial results on Wednesday, could become the latest to be caught in the fallout from the catastrophic drought that is already hitting everything from wine production to the wool clip.
“I would normally have bought about 100 tons of (fertiliser and crop protection) product by now, but there has been no rain, we have no soil moisture, so I haven't purchased any this year,” said Tom Woolaston, a grains and livestock farmer in Somerton, 440km northwest of Sydney.
Analysts said it was too early to forecast 2019/20 demand for fertiliser and crop protection products as rain later in the season could bolster appetite again.
“If rains arrive in September, farmers will increase the use of nitrogen, if it remains dry, demand will fall further,” said Wesley Lefroy, an analyst at Rabobank.
Demand for fertiliser in Australia fell 2% to total 6.5-million tons last season, according to data from industry group Fertilizer Australia. Researcher IBIS World estimates Australia's fertiliser industry is worth about A$4bn.
Nufarm in September reported an annual loss, sending shares down more than 8%. At that time, Nufarm said a return to profitability was likely in 2019, but that this would depend on a return to “more average (weather) conditions” by winter.
“Nufarm has guidance but in our opinion, there is a significant downside risk,” said Belinda Moore, equity analyst at Morgans.
A spokeswoman for Nufarm declined to comment as the company was unable to speak ahead of its financial results.
A poor season last year also meant that farmers stopped applying fertiliser earlier than usual, leaving them with stockpiles that still need to be worked through, growers said.
Nearly half of the states of New South Wales and Queensland have recorded less than 50% of their normal amount of rain over the last three months, data from the Australian Bureau of Meteorology show, with dry conditions set to linger until at least the end of May.
New South Wales and Queensland usually produce about half of all Australian wheat. The country's exports of the grain were worth an estimated A$5.5bn ($3.9bn) last year.
“There is no margin for error. There is virtually no soil moisture, so any prolonged period of dry weather is going to leave some farmers unable to produce a crop again,” said Phin Ziebell, agribusiness economist at National Australia Bank.